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EU: Deeper Recession Forecast

Econintersect: The
European Union Commission has issued it's winter economic forecast. The
recession is likely to see the 17-country Eurozone GDP shrink
another 0.3% in the first half of 2013. This contrasts to the forecast
of 0.1% gain for the same time period just three months ago. The
sharply lower forecast comes after the Eurozone saw a steep fourth
quarter decline in GDP (-0.6%). The new forecast would put the Eurozone
in a 0.9% GDP hole compared to third quarter of 2012 and more than 1%
lower compared to third quarter 2011. The fourth quarter of 2013 was
forecast to see a rebound with GDP growth of 0.7%. This would be a
dramatic move as shown in a graph below.

Follow up:

The recovery is expected to continue in 2014 with a GDP expansion for the year of 1.4%.The full 27-country EU, which
includes countries such as Great Britain, Poland, Sweden and Norway who
retain their own currencies, is still expected to have positive GDP
grwoth for 2013, but just barely (+0.1%). The EU27 saw a decline of
0.5% on GDP for the fourth quarter 2012.For 2014 the GDP growth forecast for the EU27 is +1.6%.EU officials are attributing the expected recovery to austerity, as indicated by this from USA Today:

"The decisive policy action undertaken recently is
paving the way for a return to recovery," said Olli Rehn, the
Commission's top economic official.

Two interesting graphics from the
report are reproduced below. The first (Graph 1.5) shows that bank
lending is down to levels similar to the Great Financial Crisis (GFC).

Graph 1.8
shows that the EU17 has probably been in recession for at least five
quarters and the EU27 has only had one quarter with positive GDP growth
over the same interval. The forecast is anticipating a sharp "V"
recovery following a meandering negative performance. Is this what you
might call "hopium?"

After a disappointing second half of 2012, slow economic growth of
just 0.1% is forecast for the EU as a whole in 2013. The eurozone
economy is expected to contract by 0.3%.
The improved financial market situation has not yet worked through
into better growth, and prospects for 2013 remain muted. But, as the
pre-crisis imbalances continue to be reduced, growth should start to
pick up, with the 2014 forecast figures 1.6% in the EU and 1.4% in the
eurozone.Unemployment
The weak economy this year is expected to see unemployment rates rise to 11.1% in the EU and 12.2% in the eurozone.Inflation
Inflation in the EU should decrease gradually in the course of 2013
and stabilise at around 1.7% in the EU and 1.5% in the eurozone next
year.Public finances
As many EU countries are implementing fiscal consolidation measures,
budget deficits are projected to shrink to 3.4% in the EU and 2.8% in
the eurozone in 2013.New winter economic forecast
These projections appear in the Commission's first ever 'winter economic forecast'
for the eurozone and the EU as a whole (published on 22 February). The
new forecast is part of the EU's efforts to monitor national economies
and public finances more closely, prompted by the economic and financial
crisis. The forecast covers GDP growth, inflation, employment and
public finances for 2012-14.